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<strong>to</strong> operate in a manner that is consistent with sound business practices or regula<strong>to</strong>ry requirements. Supervisors should assess whe<strong>the</strong>r <strong>the</strong> failures are material and <strong>the</strong> preventive and corrective measures should be appropriate <strong>to</strong> <strong>the</strong> extent of <strong>the</strong> risk posed. 14.49 The preventive measures regarding solvency capital should be in line with <strong>the</strong> response <strong>to</strong> <strong>the</strong> CfA 15 on Solvency Control Levels. Principles underpinning <strong>the</strong> use of remedial /corrective measures 14.50 Supervisory authorities should take immediate action or implement remedial measures if <strong>the</strong> application of preventive measures has not prevented a situation from worsening or if <strong>the</strong> insurer’s management has ignored requests from <strong>the</strong> supervisory authority <strong>to</strong> take corrective action. 14.51 Supervisory authorities enforce corrective action and, where needed, impose remedial action based on clear, objective and publicly disclosed criteria. The process of applying remedial action should not delay <strong>the</strong> processing and enforcement of necessary preventive and corrective measures. 14.52 The process of applying preventive and corrective measures should not delay <strong>the</strong> enforcement of necessary remedial action. 14.53 Remedial and corrective measures may include taking control of <strong>the</strong> insurer, or petitioning for <strong>the</strong> appointment of o<strong>the</strong>r specified officials or administra<strong>to</strong>rs for <strong>the</strong> task (e.g. trustees) and <strong>to</strong> make such arrangements for <strong>the</strong> benefit of <strong>the</strong> policyholders and beneficiaries as necessary, for example <strong>to</strong> require a plan for <strong>the</strong> rapid res<strong>to</strong>ration of a sound financial position. This power should be exercisable in circumstances both where <strong>the</strong> insurer is in financial difficulties and where it has become insolvent (see also CfA 15). CEIOPS is aware that this power is currently not admitted under national corporate laws of all Member States. 14.54 Supervisory authorities should have <strong>the</strong> power <strong>to</strong> issue formal directions <strong>to</strong> companies <strong>to</strong> take particular actions or <strong>to</strong> desist from taking particular actions. Failure <strong>to</strong> comply with a formal direction issued by supervisory authorities may trigger any of <strong>the</strong> responses listed below (see also CfA 15). Ultimate actions 14.55 Supervisory authorities should take ultimate action if an undertaking breaches <strong>the</strong> MCR. 14.56 Ultimate actions are (see also CfA 15): (1) ei<strong>the</strong>r <strong>to</strong> withdraw <strong>the</strong> undertaking’s license: • <strong>to</strong> permanently and irreversibly prevent new business and run- 168
off all contracts; • <strong>to</strong> facilitate a transfer (if necessary in some Member States a compulsory transfer) of <strong>the</strong> portfolio and policy obligations of a failing insurer <strong>to</strong> ano<strong>the</strong>r insurer who is willing <strong>to</strong> accept this transfer; (2) or <strong>to</strong> petition for <strong>the</strong> insurer <strong>to</strong> be wound up; or, if allowed by <strong>the</strong> national corporate law, <strong>to</strong> petition for a reduction in <strong>the</strong> insurers’ liabilities under its insurance contracts as an alternative <strong>to</strong> winding-up, or <strong>to</strong> promote a scheme of arrangement whereby policyholders agree <strong>to</strong> compromise, commute, buy back or o<strong>the</strong>rwise accept reduced benefits under <strong>the</strong>ir insurance contracts. Powers of <strong>the</strong> supervisory authorities over third parties <strong>to</strong> whom an insurance undertaking has outsourced key activities 14.57 Supervisory authorities should have <strong>the</strong> power <strong>to</strong>: Reporting powers • obtain all material information from relevant third parties, especially <strong>to</strong> obtain information from insurance or reinsurance undertakings from whom or <strong>to</strong> whom <strong>the</strong> undertaking has ceded business, and from all persons who have had dealings with <strong>the</strong> insurance undertaking or which have or might reasonably be expected <strong>to</strong> have information as <strong>to</strong> <strong>the</strong> insurance undertakings’ affairs; • extend on-site inspections <strong>to</strong> obtain information from intermediaries and companies that are exercising outsourced functions on behalf of <strong>the</strong> insurance undertaking; • demand oversight and clear accountability for all outsourced functions at least equal <strong>to</strong> <strong>the</strong> level achieved if <strong>the</strong> functions were performed internally and subject <strong>to</strong> <strong>the</strong> normal standards for internal controls; CEIOPS is aware that supervisory powers should in general be exercised in accordance with all laws applicable <strong>to</strong> an insurance undertaking, including national and international data protection laws and company laws. 14.58 Supervisory authorities should have <strong>the</strong> power <strong>to</strong> demand that undertakings inform supervisory authorities immediately if solvency control levels are breached or if undertakings expect <strong>the</strong>m <strong>to</strong> be breached. This reporting obligation should also apply <strong>to</strong> persons in key functions and <strong>to</strong> an insurer’s external audi<strong>to</strong>rs, though with <strong>the</strong> proviso that notification by <strong>the</strong> undertaking itself is adequate. Fur<strong>the</strong>r requirements will be outlined in <strong>the</strong> answer <strong>to</strong> <strong>the</strong> CfA 21 on 169
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CEIOPS-DOC-07/05 Answers</s
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Style convention The following has
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• Safety measures (CfA 9); • So
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sole purpose is to
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Call for Advice No. 7 Technical pro
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one year). Therefore, capital requi
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perhaps through an explicit additio
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Discounting 7.22 The present value
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exposed to risk fr
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insurance liabilities set by refere
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Profit sharing In practice, for uni
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future cash flows will have <strong
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Explanatory text S
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always have resources to</s
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developed. They would help
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8.28 A fourth option could be envis
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In principle, "the
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8.48 Three alternatives can be cons
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essential part of the</stro
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statistical estimate (with a level
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8.77 It may be argued that
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to use more sophis
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consequence on the
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8.105 In some cases, the</s
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This shall be reviewed, at least an
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ut the exposure <s
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Explanatory text M
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9.15 Solvency II could also employ
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9.28 The life formula yields itself
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underestimate them
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'Prudent person plus' approach 9.52
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Uniform or different rules for tech
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through a prescribed list. Lists ar
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addition a range of stresses so tha
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(including the Rei
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for review of the
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eligibility criteria, or principles
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should not lead to
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• the degree of
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9.156 The senior management shall r
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- going-concern aspects of business
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features. 81 TailVaR is an example
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10.17 The SCR should also reflect <
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10.26 The risk of asset liability m
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Naturally, the pra
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too few categories
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- Choice of volume measures 10.57 W
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Underwriting risk in non-life insur
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volatility of thei
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those insurers this possible increa
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10.103 A factor-ba
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10.112 Assessing whethe</st
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10.121 The SCR should deliver a lev
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whenever its effects on the
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scenario techniques to</str
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Operational risk just ratings infor
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Call for Advice No. 11 Solvency cap
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Costs and Benefits 11.6 It should b
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future Framework Directive. CEIOPS
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18.94 Model validation in t
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the assumptions us
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Annexes Annex A (Call for Advice No
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pursuing a strategy which t
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Specific principles for non-life in
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Conformity, suitability and suffici
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• existence of significant insuff
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A.64 In the tests
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the rules on <stro
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TVaR1-α for Tail Value-at-risk. In
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Degree of personalisation B.24 Tran
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B.34 There are two approaches <stro
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Segmentation B.44 In general terms,
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technical technical technical techn
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B.61 The second alternative was cho
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Dutch supervisory authority for <st
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Market risk Equity risk this altern
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B.95 In a scenario-based approach,
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B.106 As an alternative one could t
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where: KTSA = the
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Results from the a
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Solvency ratio prior to</st
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Number of instances Risk group Deta
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Conclusion In general, the<
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where: TP gross = technical provisi
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premium risk, the
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“While proportional reinsurance t
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contribute with any additional info
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E.29 Another way <
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programmes on the
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